Economist who predicted 2008 crisis projects strong recession for end of 2022

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In an interview with Bloomberg on Monday (19), economist Nouriel Roubini, one of the few to predict the 2008 financial crisis, said that a “long and ugly” recession could hit the United States and the world later this year, and that the crisis could persist until 2023.

Roubini also warned that even a simple pullback could bring the S&P 500 down by 30%. He expects, however, an even greater crisis for the country, which would cause a 40% drop in the index.

The economist, who earned the nickname “Doctor Doom” (Doctor Apocalypse) after predicting the bursting of the housing bubble of 2008, drew attention to the indebtedness rates of companies and governments, saying that the numbers could be indicators of a deeper recession in the United States, especially in a context of rising interest rates.

“Many zombie institutions, zombie families, corporations, banks, shadow banks and zombie countries are going to die,” Roubini told Bloomberg.

According to him, reaching an inflation rate of 2% in the US without a hard landing (a sharp downturn in the economy) would be a “mission impossible” for the Fed (Federal Reserve, the US central bank). Today, the accumulated high of inflation in 12 months of the country is at 8.3%.

The economist projects a 0.75 percentage point increase in American interest rates at this Wednesday’s meeting (21), and another 0.50 point at the November and December meetings. With that, the Fed’s interest rate would be between 4% and 4.25% until the end of the year.

For him, persistent inflation, especially in wages and in the service sector, will leave the Fed with no choice but to raise interest rates further, which is expected to reach 5%, according to its projections.

Furthermore, Roubini claims that supply shocks stemming from the pandemic, the Ukraine War and China’s Covid zero policy will bring higher costs and lower economic growth, making the Fed’s mission even more difficult.

The economist also says that he does not expect fiscal stimulus as a response to the crisis, as high government debt and rising inflation would make expansionary policies impossible. As a result, Roubini projects stagflation (stagnation combined with inflation) and high debt, similar to the global financial crisis.

“It’s not going to be a short, shallow recession, it’s going to be a severe, long, ugly recession,” he told Bloomberg.

Roubini expects the US and global recession to last through 2023, depending on the severity of supply shocks and financial difficulties. During the 2008 crisis, households and banks were hardest hit. This time, he says corporations and financial institutions such as hedge funds, private equity and credit funds are “going to implode.”

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